February 26, 2014 at 6:00 AM
An internal “tax” ended up costing one local restaurant chain plenty. Chickie’s and Pete’s Crab House and Sports Bar, with a location right here in Audubon, was forced to pay up via a lawsuit. A total of $8.52 million will be paid back to employees and the state to make up for the blunder.
According to a report in the Pennsylvania Record, the tax was forced from all locations’ wait staff.
“During the course of their investigation, government officials discovered that the business forced restaurant servers to contribute a portion of their tips to an improper ‘tip pool,’ or tip-sharing arrangement, which comprised about 2 to 4 percent of a server’s daily tables, according to the Labor Department,” said the Pennsylvania Record report. “Ciarrocchi then retained about 60 percent of the tip pool in what soon became known as ‘Pete’s Tax.’”
The tax had to be paid at the end of each shift in cash, even if a waiter’s tips were given in credit.
The Bellevue Communications Group’s Kevin Feeley, spokesman for the restaurant, told LP TAP that some of the employees impacted may very well include those at Audubon. Chickie’s and Pete’s opened its doors in late 2011 at 675 Shannondell Blvd., Audubon.
“There were over 1,150 employees affected over the last three years,” said Feeley. “It very well could mean those in Audubon were impacted.”
Though names of the 1,159 employees were not released, Feeley said that they were across all 12 of the restaurant’s locations.
The company’s owner, Peter Ciarrocchi Jr., agreed ahead of litigation to make corrective actions, according to Feeley.
“Before settlement, Chickie’s and Pete’s did its own review of its practices with respect to implementing training,” said Feeley. “With this suit, they’ve agreed to do more with the Department of Labor.”
Feeley said he feels recent media explanations of the DOL’s findings have been framed in an unfair way.
“There has been a lot of talk over the last several days, a lot of it coming from the DOL,” he said. “They make it sound like [Ciarrocchi] kept tips of his employees, 60 percent of the tips. They’ve made Pete look like he is something he is not.”
Feeley noted that the business administrators felt they were following the laws correctly.
“They do have the right to a tip pool by law,” said Feeley. “If they do that, though, it can easily run afoul with the federal tip credit regulations.”
It was the federal laws that got Ciarrocchi into hot water.
“This is a large block of claims, and the violation goes back to paying the difference between base and minimum wages,” said Feeley. “No they go back and pay the difference, even if many of the employees were making minimum wage. They are getting additional money. It is basically a windfall for them.”
Brian Johnson, the regional director of enforcement for the Labor Department, told the Philadelphia Inquirer that the DOL’s findings went beyond tip taxes.
“These weren’t just violations,” Johnson told philly.com. “This was part of [Ciarrocchi’s] business model. He noted other infractions included failing to pay minimum wages, paying properly for overtime and forcing time devoted to mandatory trainings and meetings, according to philly.com.
“Tips are the property of the employees who receive them,” said Johnson to philly.com. “Taking a portion of those tips can have costly consequences for a restaurant owner”
Johnson called the provisions being paid by Ciarrocchi a “larger message the Labor Department is trying to send.”
Of the $8.52 million in funds being paid out, $6.8 million is to be paid to 1,159 employees (both past and present). An additional $1.68 million will go to settle federal lawsuits with approximately 90 current and former employees.
At the end of the day, Feeley said that Ciarrocchi is doing the right thing, and wants to do so.
“Something like 80 percent of the employees have been with Pete for more than four years,” he said. “By all objective standards, folks like working with him. Pete wants to do the right thing, and says employees are the backbone of Chickie’s and Pete’s.”